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A Money Scandal That's Rocking Hip-Hop

GABRIELE T. SMITH seemed to carry an all-access pass to rap music's circles of power. Usually decked out in designer clothes, she vacationed with the music supercouple Jay-Z and Beyoncé in the Caribbean. She dined at Mr. Chow in Manhattan. She traveled in style to the N.B.A.'s All-Star game.

In fact, Ms. Smith had nestled so comfortably into the bling-encrusted embrace of the industry's heavyweights that she established herself as the money manager to the stars. At major investment houses and then through her own company, Premier Business Management L.L.C. in New York, Ms. Smith built a client list that included the president of the Def Jam Recordings label, rap stars like Fabolous and DJ Clue, and an assortment of wealthy young music executives.

These days, however, many of those same executives and artists are accusing Ms. Smith, a 35-year-old stockbroker and former talent scout, of running an elaborate hustle. In lawsuits filed against her and the banks where she maintained accounts, former clients say Ms. Smith stole more than $3 million, using some of their money to pay other investors and pocketing the rest.

In addition to the lawsuits, which have been filed in New York Supreme Court in Manhattan, public records indicate that at least one client has undertaken private claims against her former employers, Morgan Stanley and Prudential Securities, in arbitration proceedings. The firms declined to comment on the claims. J.P. Morgan Chase and HSBC, two banks named as defendants in some of the lawsuits, also declined to comment.

Ms. Smith has also been indicted on federal charges that mirror many of the allegations in the lawsuits, according to people briefed on her case. The charges, in Federal District Court in Brooklyn, are under seal, which is sometimes a sign that prosecutors may offer a deal for a defendant's cooperation in another case.

Whether Ms. Smith possesses any information that authorities may find useful is a mystery. There is speculation in rap circles that she may provide information in another federal inquiry, this one into suspicions of money laundering involving a convicted drug dealer, Kenneth McGriff, and the rap music label Murder Inc. Ms. Smith's company managed a bank account from which it paid business and personal expenses "on behalf of" Mr. McGriff, according to a document filed by prosecutors. Investigators have seized the account. Mr. McGriff and others involved in the case are scheduled to go on trial in October.

While the various civil and criminal cases inch through the courts, Ms. Smith's former clients say they are angry, embarrassed and trying to figure out: How could she have bamboozled some of the savviest players in hip-hop?

To be sure, Ms. Smith had a résumé that was outwardly impressive, and she exuded a cheery confidence that together with her appearance -- her long dyed-blond hair and her easy smile -- gave her the air of a sorority house pledge, former clients said. And she was dating a trusted music industry insider, Michael Kyser, then the vice president for promotion at Def Jam. More than any of that, though, she had -- aptly enough, for someone whom friends call Gabby -- the gift of gab, her clients said.

In a brief telephone conversation, however, Ms. Smith declined to comment on the record for this article. Her criminal defense attorney, Kenneth A. Paul, declined to discuss her case in detail or to confirm the filing of charges. "I understand people who say they were victimized and say they lost money are upset," he said. "I don't think it's fair to attribute their losses to Gabriele Smith."

MS. SMITH certainly came a long way in relatively short order. Regarded as a show-business washout less than a decade ago, she turned around her fortunes as a financial adviser: buying a $564,000 hilltop house in the small town of Pomona, N.Y., about 40 miles north of New York City; acquiring a black Range Rover to drive into the city; and indulging her fondness for trendy clothes and accessories that even extended to a plush Louis Vuitton carrying case for her beloved Yorkshire terrier, Dior.

Anyone who visited Premier Financial in Manhattan would have seen a hive of activity. In a fourth-floor suite on West 38th Street, near Fifth Avenue, Ms. Smith and her employees scrambled to provide the services that many celebrities expect of their business managers -- from investing their savings to paying their bills.

(Ms. Smith's company is not related to Premier Financial Advisors Inc. on East 60th Street.)

Yet the lawsuits contend that her proficiency in finance served no one better than herself. In court papers and interviews, several former clients said she forged their signatures to make unauthorized withdrawals and fabricated account statements to cover up the transactions.

"At one point she was one of the most trusted financial advisers in the business, and it's painstakingly obvious that she's ruined that," said Jasmine Young Trinidad, a former Def Jam executive who is known as Jazz and was one of Ms. Smith's clients. "People in the business are feeling outraged and betrayed."

Ms. Smith, it turns out, always wanted to make a name for herself in the music business. After attending the University of Maryland -- where she did not earn a degree, according to a university spokeswoman -- she spent some time paying her dues at entry-level jobs at Jive Records and then Def Jam. By 1995, she landed a job as an artist-and-repertoire executive, or talent scout, for Tommy Boy Records, an independent label known for delivering hits by performers including Queen Latifah and the group Naughty by Nature.

Monica Lynch, Tommy Boy's former president, recalled that Ms. Smith "had a very bubbly, effervescent personality; she was fun." While other former associates say that Ms. Smith appeared fascinated by the trappings of fame, Ms. Lynch said Ms. Smith "didn't have a lot of the diva behavior that sometimes one associates with the younger generation of A.&R. people."

Unfortunately for Ms. Smith, she didn't seem to have an ear for platinum-selling talent, either. Her career at Tommy Boy was unexceptional; she was credited with being a co-supervisor for talent on the soundtrack for the gritty 1995 movie "New Jersey Drive," and is listed as executive producer on the debut CD from an underground rapper, Big Noyd. The soundtrack went on to sell about 400,000 copies, a modest success, but none of her other projects generated significant sales, and Ms. Smith left the label after about a year. Her career in music appeared to have stalled before it had gone very far.

It was then, former associates say, that she decided to reinvent herself, by studying for and passing the stockbroker's exam. Soon after she landed a job as a broker at Morgan Stanley, in 1997, she tried to tap back into the music industry's glitz by recruiting former colleagues to use her as a broker. One former colleague who spoke on condition of anonymity recalled handing the rookie stock trader several thousand dollars, which grew rapidly after Ms. Smith invested in technology shares just as the bubble was starting to build. She soon signed up Kevin Liles, then the president of the Def Jam label and one of the most prominent executives in the music business.

She also branched out to celebrities in other fields. In November 1999, according to court papers, she met Walter Berry, the former St. John's basketball star who played for three seasons in the N.B.A. After a mutual acquaintance introduced them, Ms. Smith met with Mr. Berry and his wife, Tammy, at their home in New Jersey and persuaded them that she could generate a healthy return on their retirement savings, according to court records; they say that they initially invested $1 million, and that Ms. Smith guaranteed a return of 20 percent.

Along the way, former clients say, Ms. Smith appeared to be a thoughtful and shrewd investor, an impression reinforced when Black Enterprise magazine quoted her in a February 2000 article entitled "Investing for the Long Haul." In that article, Ms. Smith, then an associate vice president working in Morgan Stanley's offices in White Plains, shared her philosophy on the subject: "When investors come to me, I tell them that they should know how much money they have to invest, the amount of time they need to reach their investment goal and how much risk they can tolerate."

Her customers had become loyal enough that in 2001, when Prudential Securities hired her away from Morgan Stanley, many shifted their assets to Prudential to stay with her. Just a few months later, however, in October 2001, Ms. Smith left. Prudential discovered that she had started her own financial management firm while still working for the company.

"Gabriele Smith never asked our permission to be involved with this outside company," a Prudential spokesman, Jim Gorman, said last week. "When we found out about it, we took steps to prevent her from continuing to be associated with the outside company." He declined to elaborate.

By the end of that year, Ms. Smith had formally hung out a shingle as an independent business manager, providing investment advice and accounting services. Industry executives said she was constantly trolling for new clients in music circles, and thanks in part to her busy social calendar -- which included attending exclusive events on the arm of her boyfriend, Mr. Kyser -- she had ample opportunity. Mr. Kyser vouched for her, her former clients said.

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She signed up Richard Ford, known as Skane, a partner in the Desert Storm record label, and he in turn referred several associates, including DJ Clue, Mr. Ford said. Ms. Smith signed up Ms. Trinidad, the general manager of Bloodline, a label distributed by Def Jam; and Carline Balan, executive assistant to the Def Jam rap star Jay-Z.

In a brief interview last week, Mr. Kyser, now an executive at Atlantic Records, denied having solicited clients for Ms. Smith. "Everybody knows me and everybody knows my reputation," he said. "This was a business that she created, I didn't handle the day-to-day. I had nothing to do with the business." Mr. Kyser and Ms. Smith ended their relationship some time ago.

But as Ms. Smith built her practice, there were signs that her clients might be exposed to more risk than they realized, according to court papers. Mr. Berry and his wife, for instance, said in their suit that at the end of 2000, the first year that Ms. Smith handled their retirement savings, she sent them a check for $120,000. She said it was a return on their investments. When they asked why the amount didn't add up to the promised 20 percent annual return -- $200,000 -- Ms. Smith said the difference had been withheld for taxes, the suit says. The Berrys accepted that explanation that year, and the next.

AS she enjoyed the high life, Ms. Smith seemed on top of the world. In October 2002, Mr. Kyser proposed to her at a concert in Boston, where Jay-Z brought the couple on stage and introduced them to the crowd, according to people who attended.

But the party that seemed to surround Ms. Smith was about to come to a halt. Her clients started discovering that bills supposedly handled by Ms. Smith had not been paid. Mr. Ford, for example, recalled getting an unexpected warning from his mortgage company. He said that Premier was supposed to have made the payments.

Mr. Ford was in for an even bigger shock when he visited an account executive at Prudential, where he believed that Ms. Smith had been supervising roughly $700,000 of his savings. "He's like, 'Hey, it's nice to finally meet you face to face,"' Mr. Ford recalled. "I had never spoken to him before. When he said those words, I said to myself, 'I'm wiped out.' I knew what time it was." Mr. Ford said the Prudential executive told him that he had only $17,000 left in his account; the rest is missing.

John T. McGuire, a securities lawyer representing Mr. Ford and several other former Premier clients, said records he obtained while preparing his case showed that most of the money never made it to Prudential, and that some of the money that was deposited had been transferred out with forged signatures.

But the rudest awakening of all for Premier's clients -- and, presumably, for Ms. Smith herself -- came on Jan. 3, 2003. That was when federal authorities raided her offices as part of their investigation of Mr. McGriff -- whose drug-dealing organization dominated the Baisley Park housing project in Jamaica, Queens, in the 1980's -- and Murder Inc., the music label headed by Irving Lorenzo.

The investigators were particularly interested in documents relating to an account that Premier had maintained for Mr. McGriff as the executive producer of a straight-to-video film called "Crime Partners," according to court records. They said the movie had been used to help Mr. McGriff, sometimes known as "Supreme," launder profits from his drug business. A spokesman for the United States Attorney's Office declined to comment for this article.

According to people involved in the case, Ms. Smith's company also handled money for Ronald Robinson, an artist manager also known as Gutta, whom the authorities have indicted on money-laundering charges.

Mr. Robinson, who represents Murder Inc.'s biggest act, the rapper Ja Rule, had been frustrated with Ms. Smith's delays in paying his bills, according to one person involved in the dispute, and had decided to fire her just before her office was raided.

Ms. Trinidad said that shortly after the raid, she asked Ms. Smith to bring a statement of her finances when they were to meet on another matter. Ms. Smith, she said, arrived with a statement from an investment firm called A&T Financial showing that she had roughly $70,000 in an account -- about half of what she had entrusted to Premier.

Ms. Trinidad said she drove to an HSBC bank branch, where she knew Ms. Smith maintained a number of bank accounts. There, she said, she learned that A&T Financial was not a registered financial-services company, but apparently nothing more than a name on a checking account controlled by Ms. Smith.

Over the next few weeks, Ms. Trinidad said, she demanded her money back, at one point trying to enlist Mr. Kyser, one of her Def Jam colleagues, to press Ms. Smith during a three-way phone call to return the money. Ms. Trinidad said she even drove to Ms. Smith's home in Pomona one evening, where Mr. Kyser came to the door wearing his boxer shorts. Ms. Trinidad said that he telephoned Ms. Smith, who told him to call the police. (He didn't.)

Ms. Trinidad, who now owns the Fat's Chicken and Rib Joint restaurant in Teaneck, N.J., said she has yet to recover a penny.

Indeed, the only client known to have recovered their money is Ms. Balan, who had also aggressively pursued Ms. Smith until she retrieved her $100,000. "I feel blessed that I got my money back," she said.

Several other former clients have hired lawyers in efforts to recover their savings or investments, primarily by pursuing the banks and brokerage firms that they say should have been paying closer attention to Ms. Smith's business dealings. Mr. and Mrs. Berry, for example, have pursued private arbitration claims against Morgan Stanley and Prudential, records show, and have a lawsuit pending against HSBC.

MR. FORD, who along with the Berrys is represented by Mr. McGuire, has sued J.P. Morgan Chase. Mr. Liles, now an executive vice president at the Warner Music Group, has sued Ms. Smith, saying he lost about $450,000 that he had invested with Ms. Smith when she was at Morgan Stanley and Prudential. He declined to comment for this article.

Mr. McGuire said, "We've combed through thousands of pages of bank records to try and trace the money," and even interviewed Ms. Smith after she had discharged her civil lawyers. "We have recovered several million dollars for people who were victimized from the financial institutions that were supposed to supervise her," he said. "We expect to have some success in recovering additional funds."

Ms. Trinidad said she plans to sue, too, if only to help her understand what happened. "This was part of my nest egg," she said. "I'm dying to know: Where did the money go?"